Nestlé to Buy Jenny Craig, Betting Diets Are on Rise

Nestlé, the Swiss food giant, has agreed to pay about $600 million for Jenny Craig, the weight loss company that has had a surprise turnaround in recent years as a result of an irreverent advertising campaign chronicling the slimming waistline of Kirstie Alley, of "Fat Actress" fame.

The deal is a bold gamble for Nestlé, which is known for KitKat bars and Nesquik but less for its role in the $30 billion weight-loss management industry. The deal is also a bet that consumers, for reasons of health and vanity, will continue trying to lose weight through prepackaged meals and motivational workshops, especially as the nation is fighting an escalating obesity epidemic.

Calling obesity a "major public health concern," Nestlé's chairman and chief executive, Peter Brabeck-Letmathe, said in a statement that the Jenny Craig purchase would help transform Nestlé into "a nutrition, health and wellness company that sees weight management as a key competence."

The acquisition is also part of Nestlé's effort to expand in what is described as the "functional food" category through its Nestlé Nutrition unit, which makes PowerBars, baby foods and a series of nutritionally enriched products for the elderly. Jenny Craig manufactures prepackaged meals that are sold exclusively through its weight loss centers.

Analysts say they expect Nestlé could try to take advantage of the brand recognition of Jenny Craig to begin selling an expanded line of meals through supermarkets and other channels, where Nestlé can use its scale and influence to command premium shelf space. And the market for diet-related products is growing at almost 10 percent a year.

For Nestlé, which already owns Lean Cuisine, the deal will bolster its position against rivals like Unilever, which sells Slim-Fast packaged meals and shakes — a business that is growing at double digits — as well as Weight Watchers International and ConAgra Brands, which owns Healthy Choice.

The deal also marks the first time a major food manufacturer has made such a big bet on a business that is not strictly about selling food. Much of Jenny Craig's appeal lies in the personal evaluations and tailored diets that it offers clients, as well as the weekly workshops at its 600 centers in the United States, Canada, Australia and New Zealand, where dieters come to get motivated. Indeed, if Nestlé pursues a supermarket strategy with Jenny Craig, it may face a huge challenge: Jenny Craig stumbled in the late 1990's, in part, because it too began selling food and diet products outside of its centers, a move that was blamed for confusing the brand among consumers and driving down sales.

Nestlé won a long-running auction for Jenny Craig, which was put up for sale in January by its owners, ACI Capital and MidOcean Partners, a spinoff of Deutsche Bank's private equity arm. The private equity firms had acquired a majority interest in Jenny Craig from the company's founders, Sid and Jenny Craig, in 2002 for $115 million. The sale is a major coup for the firms, which reaped more than five times their investment in less than five years.

Jenny Craig's turnaround has been dramatic. When ACI and Mid-Ocean bought the company, it was suffering from a string of image and fiscal problems. The company had just been delisted from the New York Stock Exchange and was forced to close more than 100 stores as it continued to lose sales to the fitness craze and a free-for-all of new weight loss products sold on the Internet. It lost a $15 million lawsuit for selling the fen-phen diet drug combination in 1997 and suffered a public relations blunder in 1999 when it hired Monica S. Lewinsky as its spokeswoman, only to fire her after a firestorm of controversy.

But under ACI and MidOcean, Jenny Craig's fortunes took off: new management came in (and will stay), and Jenny Craig stopped selling food outside its centers and remade itself not simply as a diet center but as a lifestyle company.

The company's biggest transformation came when Kirstie Alley called in December 2004. Ms. Alley, an actress who starred in the hit television series "Cheers" and several big movies like "Look Who's Talking," had ballooned to over 200 pounds and was planning to star in a new series for Showtime called "Fat Actress." It was an enormous risk for Jenny Craig to use her as the company's spokeswoman because it had never used someone before they lost weight. But she did — so far she's down at least 65 pounds, according to her blog on Jenny Craig's Web site — and the campaign generated an enormous amount of buzz for Jenny Craig and got consumers to come in and try the diet.

Because of an editing error, an article in Business Day on Monday about plans by Nestlé, the Swiss food giant, to acquire Jenny Craig, the weight-loss company, misidentified the maker of the candy bar KitKat. It is the Hershey Company, not Nestlé.

A version of this article appears in print on , on page C1 of the New York edition with the headline: Nestlé to Buy Jenny Craig, Betting Diets Are on Rise. Order Reprints|Today's Paper|Subscribe